Article appeared in the October 2021 issue of Formiche magazine
For those who select funds and manage portfolios, the expansion of the investment universe is good and bad news at the same time. While on the one hand it is possible to build a diversified ESG (Environmental, social, governance) portfolio without having excessive exposure to single themes, sectors or geographical areas, on the other hand it is increasingly difficult to distinguish truly sustainable funds and assets from those which of Esg have only the label.
The regulation is also adapting to this evolution, on the one hand by creating a common taxonomy (think of Brussels), on the other by asking large companies and institutional investors to report their extra-financial results on an annual basis. Therefore, it is possible to try to evaluate the social, environmental and governance dimensions not only in the ex post measurement but also in the investment evaluation phase. And it is important to do so. But how to assess the level of sustainability of a fund or an investment strategy
There is a problem solver in the role of Rodolfo Fracassi of Mainstreet, with his heart in Italy where he provides ESG consultancy to a select portfolio of institutional clients, including Banca Generali: “Most of the analyzes today focus on instant sustainability, represented by the analysis of the individual positions held in the portfolio at a precise moment, leaving out fundamental factors linked to the other dimensions which, on the other hand, are typically assessed during a financial due diligence and which make it possible to obtain a complete and above all lasting assessment. Because of this, we have worked over the years to borrow the financial evaluation approach of investment strategies and extend it to the aspects of sustainability by applying the same level of depth and detail in evaluating the ESG component as well. Our proprietary methodology rests on three pillars. First of all, we evaluate the sustainability of the management company and the investment team, then we evaluate the level of integration of the ESG variables in the investment process and finally the positions held in the portfolio “.
We already feel reassured: sustainability is not a trend but an economic process and as such subject to the rules and criteria that govern the market. We are light years away from the rhetoric on sustainability and even in language it shows. “Two other aspects should be underlined: on the one hand it is important that the evaluation system is as objective as possible, limiting the level of subjective judgment that the single analyst can apply to the evaluation. In our case, we have developed a system consisting of almost one hundred questions covering all the aspects presented above and for each of these five answers have been preset based on the most quantitative possible parameters, in such a way that the level of individual intervention is reduced. .
The real point is not to apply a black or white judgment but to map on a precise scale the different levels of sustainability of the strategies among which investors can choose, as it is possible to do so at a financial level both in the selection of instruments and construction of the portfolios and when measuring non-financial results.
The real challenge for the world of finance is to move from a framework promoted by an international organization to a real portfolio management style. To do this, it is important to recognize that SDGs (Sustainable Development Goals) can act as catalysts for the values ​​of individual investors. In particular, private investors can invest in one or more SDGs to actively contribute to the sustainable development of the planet.
Integrating these objectives into sustainable investments therefore means investing in companies that intentionally adopt sustainability practices and offer goods and services with a concrete impact on individual Sdgs. “The SDGs are able to offer very important support in the dialogue with the customer. The objective is to identify the investment themes that are closest to individual values ​​and thus achieve financial and extra-financial objectives at the same time “.
